The US Treasury Department said China had not met the standards for manipulation of the yuan, also known as the renminbi, to gain an unfair competitive trade advantage.

Such a distinction could pave the way for retaliatory sanctions. “The available evidence suggest the RMB remains significantly undervalued, and we believe further appreciation of the RMB against the dollar and other major currencies is warranted,” the Treasury said.

In its semi-annual report to Congress on exchange-rate policies, the Treasury pledged to “closely monitor” the pace of the yuan’s appreciation and “press for policy changes” to boost China’s exchange-rate flexibility.

Beijing’s tightly managed currency policy has triggered huge trade deficits in the United States, fueling a long-running source of friction between the world’s two largest economies.

Critics in Congress accuse China of keeping the yuan artificially weak to flood the US market with cheap Chinese imports that have wiped out US jobs. It is a hot-button campaign issue as Democratic President Barack Obama seeks reelection in November against the presumptive Republican candidate Mitt Romney.

With the fragile US economy at the top of voter concerns, Romney and some lawmakers have been calling for retaliatory sanctions against China, accusing Obama of failing to protect American jobs as the economy struggles to recover from the Great Recession.

The Treasury’s decision touched a nerve with Senator Chuck Schumer, a New York state Democrat whose legislation — backed by both Democrats and Republicans — was passed in October calling for retaliatory duties on Chinese goods if manipulation were found. “The administration continues to let China get away with flouting trade rules just for the sake of diplomacy. Calling out China as a manipulator may be awkward, but it is time to take off the kid gloves,” Schumer said.

“With the administration continuing to balk on this, it’s up to Congress to act.” Scott Paul, the head of the Alliance for American Manufacturing, a Washington lobbying group, agreed, urging “Congress to pass legislation to deter China’s currency manipulation.”

“I’m perplexed by this decision because it runs counter to the goal of reshoring jobs from China,” he said.

But the president of the US-China Business Council, representing 240 US companies that do business with China, defended the decision as “the right call.”

John Frisbie warned the manipulator label would likely spark a negative reaction by China and hamper progress on the currency issue.

“The Obama administration’s engagement with China at the recently concluded Strategic and Economic Dialogue (SED) and other channels has delivered results. These types of engagement need to be sustained and expanded,” Frisbie said.

The Treasury explained it declined to brand China a currency manipulator in part because of the yuan’s appreciation against the dollar since June 2010 and a decline in its massive current account surplus, a broad measure of trade.

It also cited China’s commitments in the Group of 20 major economies and the US-China SED “to move more rapidly to a more market-determined exchange rate system.”

The Treasury said the yuan had appreciated 8.0 percent against the dollar since June 2010, when China moved off its peg against the dollar, through May 15, and adjusted for rapid Chinese inflation was up 40 percent.

But, it said, “in 2012, through May 15, the RMB has been virtually flat against the dollar.”